Lululemon reportedly in the running to fill Sephora's Fifth Avenue vacancy

  • Lululemon is reported to be in advanced talks for a one-year lease at a store on Manhattan's Fifth Avenue.
  • This, at a time when many retailers are shuttering physical stores.
  • Rents in this area have averaged $3,324 per square foot during the spring of 2017, the Real Estate Board of New York said.
Colin McConnell | Toronto Star | Getty Images

While many retailers are opting to shutter brick-and-mortar locations, one company is looking to scoop up a piece of prime real estate in an expensive New York shopping district.

Lululemon Athletica is in advanced talks for a one-year lease for a "pop-up" store on Manhattan's Fifth Avenue, which was vacated by beauty supplier Sephora in March, a source told CNBC.

The news had first been reported by Bloomberg.

The activewear maker is considering taking 8,000 square feet of retail space in the Charles Scribner's Sons Building at 597 Fifth Avenue, which sits across the street from Rockefeller Center, Bloomberg reported.

The building was sold to Thor Equities in 2011.

Representatives from Lululemon and Thor Equities weren't immediately available to comment.

These discussions come at a time when Midtown Manhattan has seen retail vacancies surge, as more and more tenants can't keep up with climbing rental rates.

On New York's Fifth Avenue — between 49th and 59th streets and near Sephora's now-vacant spot — rents averaged $3,324 per square foot during the spring of 2017, about stable with last year, according to a report by the Real Estate Board of New York released on Monday.

"The Manhattan retail environment is too dynamic and should not be included with the pessimistic conjectures about e-commerce's effect on the future of brick and mortar retailing and struggling suburban shopping centers," the group wrote.

Also on Tuesday, one analyst noticed Lululemon suffering a costly glitch on its website.

"We observe [Lululemon's] website is down since yesterday afternoon," Macquarie Capital analyst Laurent Vasilescu wrote in a note to clients Tuesday. "It is quite possible that the website was down for much longer."

Every three days the website is down will cost Lululemon about 1 cent in EPS out of its total second-quarter results, Vasilescu has predicted.

"Every 24 hours represents 0.25% of total company quarterly sales and 0.33% of income from operations before general corporate expense. Another way to think about it is that every day the website is down — the company's total company comp for that day is likely down double digits."

Lululemon's stock was falling about 1.6 percent Tuesday afternoon, while shares are down 25 percent for the year-to-date period.